Promoting Telecom Access: Are universal service funds outdated?

Universal service or access funds are a mechanism by which a national regulatory authority mandates, oversees and/or coordinates a set of subsidies and fees designed to promote telecom access in a country. In other words, telecom companies, as a condition of their licence, are required to extend service access to places - rural or geographically isolated areas – where there may not be an immediate or compelling commercial incentive to do so.

The concept dates back to the US Communication Act 1934 that called for rapid, efficient, nationwide, and worldwide wire and radio communication services, with adequate facilities at reasonable charges to all the people of the US. The Universal Service Fund was formally created by the Telecommunications Act of 1996 that authorised the US Federal Communications Commission to establish mechanisms to preserve and advance universal service. Since then, many countries have followed suit. Most of the new universal service funds (USFs) are logically coming up in developing economies, particularly in the African countries, as they struggle to extend ICT benefits to deprived populations.

Even as nations define parameters for their funds and set up regulatory environments and mechanisms to implement them, there are many voices that question the validity of these funds. By and large, criticisms focus more on the (mis)management of the system rather than the concept itself.

Examining criticisms of the USF system

Although not expressly stated as such, the Global System for Mobile Communications Association (GSMA) seems to believe that USFs are not the best way to ensure universal service and access. It has argued that private sector mobile operators have been responsible for taking mobile and data technology to every corner of the world, by relying primarily on the market mechanism. Although this cannot be denied entirely, we know for certain that most of the development has been limited to urban and dense areas. It is estimated that more than half the world’s population is not connected to the internet, and there are easily over a billion people who have no phone connectivity. It is no surprise that these are the ones who live in remote or rural areas, where a profitable business case does not work out for most operators because of the low density of subscribers, coupled with low ARPUs.

Further, a common allegation against USFs is that many of them have substantial amounts of funds that have been collected but not used. In a 2013 study by the GSMA, particular mention is made of countries like Brazil and India, which have large amounts that remain unutilised. The reasons for the underutilisation could be a restrictive definition of services to be included under universal services, regulatory or structural impediments to implementation and the lack of workable projects. In the case of India, a huge amount of funds available with the Universal Service Obligation (USO) Fund is underutilised. However, it may be useful to note that the BharatNet project, with a budget of Rs 720 billion, is being funded by the USO Fund. It has gone through multiple implementation hiccups but is likely to draw big resources once it speeds up. Also, it has been recently reported that the Indian government reckons it will need Rs 1,130 billion to fulfil its dream of a digital India. Viewed in this light, the Indian USO Fund’s surplus money seems rather notional, and certainly not excessive.

By far the most relevant criticisms of USFs pertain to how the system is run. A 2013 International Telecommunication Union study listed a number of critical success factors in the management of USFs which can be grouped into two broad categories: structural and implementation related. Structural success factors include a flexible legal and regulatory framework, clarity in policy articulation, autonomy and independence, and defined and measurable objectives. Implementation related success factors include active consultation with stakeholders, clear delineation of responsibilities between the USF and other government and external agencies, flexibility and neutrality in service deployment, a fair and objective project allocation process, capacity building, sustainability, and complementary services.

Because USFs are recently set up mechanisms in many parts of the developing world, it is only understandable that some structural imbalances exist. However, in most places where USFs have been in existence for some time, this does not seem to be an issue. For example, the fund in the US has not only been a historical model, but has transitioned successfully to focus on broadband as a universal service. Similarly, the Colombian and Peruvian funds have been cited as successful examples of being flexible and progressive. Funds in Pakistan, Nigeria and Thailand are lauded for being independently structured and managed, those in Canada and Ghana for being consultative and embracing all stakeholders, and others, such as the Indian USO Fund, are mentioned for their clarity of purpose and articulation.

Many believe that there are several alternative mechanisms that are better than USFs at promoting universal service and access. The GSMA lists some of these as private network sharing, public-private partnerships (PPPs) and the introduction of service obligations into new spectrum licence awards. While sharing of private networks is advisable, such sharing works on a quid pro quo principle, and has been seen more in urban areas in the form of tower sharing. It is rarely seen in rural and remote areas, primarily because in such regions there are no private parties to share with in the first place; most of the infrastructure typically belongs to state-owned operators. In remote regions, sharing is more likely to take place for specific programmes (limited period or selective segment focus) or for publicity reasons rather than for extending connectivity to the unconnected. The same holds true for any meaningful PPPs. Since motives and management styles vary widely, such marriages are rare and short-lived.

Towards a more benign view of USFs

It can be safely argued that a more charitable view of USFs is in order, given their potential game-changing role in improving connectivity and hence, quality of life, particularly in developing countries. The trick is to view them in a more flexible and dynamic manner than simply as government constructs. As technology advances and consumer needs evolve, so must USFs. In recent years, the definition of universal service has been expanded, first to add mobile telephony, and now to add broadband to basic telephony in numerous USFs around the world.

Also, USFs are increasingly realising that they need to be seen as custodians of the deprived. Digital inclusion of disadvantaged sections of society is today as big a priority as closing the urban-rural divide. USFs are already actively funding projects to achieve such inclusion. A case in point is the Indian USO Fund that seems to be actively pursuing social objectives. It is funding three projects in particular that have the potential to change the social landscape in a visibly game-altering way. These projects are: setting up connectivity in left-wing extremist-affected regions, providing connectivity in the north-eastern region of the country and providing broadband connectivity to 250,000 gram panchayats.

USFs worldwide are also realising that the existing levels of contributions, which hover at 1-2 per cent of telecom operators’ turnovers, may not be sufficient to keep pace with technology and growing consumer needs. Nations with huge digital dreams have larger levies. Colombia and India, for example, mandate 5 per cent of the adjusted turnovers of all operators every year. Malaysian levies are at 6 per cent. The US numbers are even larger, even though the country is close to achieving universal service.

Ultimately, while evaluating USFs, it may be useful to view them as dynamic constructs, and not as bureaucratic government monoliths. There is evidence that increasingly, progressive governments and fund administrators are looking to them as such.

Conclusion

As technologies evolve frenetically and digital dreams expand, fund administrators need to take note of this and plan for bigger requirements that are likely to come sooner than they imagine. Funds that can manage to remain agile will reap the benefits of being seen as relevant, and end up achieving their objectives.